Supplemental contracts in a lease
As foreigners are not permitted to own land in Thailand the standard contract under which real estate is 'sold' to foreigners is a lease. Residential leasehold housing and apartment projects in the tourist areas often include service and maintenance agreements as an integral part of the lease. Services delivered and the annual price increases are often determined by the developer and as these contracts are an ongoing financial burden it is important to undertand the importance of these contracts before accepting the lease.
Lease contract structures aimed at foreign tourists could include contracts such as:
- rules and regulations of the project
- maintenance agreement
- management contract
- rental pool agreement
A lease contract is under Thai contract law not a true leasehold/ property, but a prepaid tenancy and personal contract right of the lessee. In the civil and commercial code lease is not placed under the rubric 'Property' (and then sub categorized under real rights) but under the rubric 'Contracts' (and the sub categorized under specific contracts). As a rental contract the term of the 'leasehold' can be terminated premature, i.e. when the lessee dies, but also when he does not comply with the conditions under which the property is leased. It could also mean that breach of any of the supplemental contracts could actually constitute a breach of the lease agreement and lead to termination of the lease (eviction of a tenant who does not comply with the terms of the lease structure).
How are management and maintenance fees calculated?
An important aspect is of course, how are the fees in a project calculated? Maintenance and management fees could (depending on the contract) be set yearly by the developer at his own discretion and as he wants to make a profit these fees could be higher than expected. Some maintenance and management contract are part of the lease and cannot be terminated or altered, or contain clauses that make it very difficult to terminate the contract or to influence the mainance and services delivered. These contracts put an ongoing financial burden on the lessee, almost similar to payment of an additional yearly rent to the owner.
As a warning to unwary foreigners buying real estate in a holiday euphoria and who often do not obtain legal advice or in good faith accept these terms this could be a costly mistake. The majority of the developers aiming their property developments at foreigners use sale structures in which they more or less control the development and the long term tenants basically have to comply with the desicions made by the owner/ developer.
Common complaints
Common complaints in residential leasehold projects in Thailand relate to high annual management and service fees and poor services. You could say in case of poor management and services or unreasonable fees just withhold payment of the annual fees, but using this leverage could be considered a breach of the lease and could give the owner the right to take legal action against the lessee for breach of contract. Tenant protection in Thailand is poor. This situation would of course be totally different for the owner of an apartment registered under the condominium act.
It is advisable to thoroughly read the supplemental contracts in a lease before signing because once signed you are commited. Even though terms and small print could be considered unfair. In practice there is given little protection in the law for the lessee, Thai laws are considered pro landlord. The rule with residential leasehold housing and apartment projects in Thailand's main tourist areas is to read all contracts involved in detail and let the buyer beware.
Note: The above applies primarily to leasehold apartments (including fractional ownership and timeshare structures) and projects where land and house are leased by foreigners. In residential housing projects the sale structure could inculde a land lease combined with seperate ownership over the building in the foreigner's name. In such structures the lessee could have a better legal position based on Supreme Court judgments.
The information in this page is not comprehensive and should not be used as legal advice but should be read as a general warning of existing lease structures and the importance of supplemental contracts to a lease.